COLUMN – Should Greek debt be forgiven?
It is no secret that four Caribbean countries are amongst the most indebted countries in the world when looking at debt as a percentage of GDP: St Kitts and Nevis, Jamaica, Grenada and Barbados. Sir Hilary Beckles (current vice-chancellor of the University of the West Indies) called for debt forgiveness for the region and urged the Caribbean Heads of government to follow suit.
There is the historical argument that the Western world benefitted from the Caribbean by extracting wealth without compensation. Additionally, there are numerous precedents outlining the International Monetary Fund providing some debt forgiveness. So for what it is worth, perhaps being very bias, I believe that the Caribbean should recieve some debt relief.
Following that reasoning one would probably assume that I would also be in favour of Greek debt forgiveness, my answer isn’t as clear cut.
PIGS are destroying Europe – Should Greek debt be forgiven?
PIGS is an acronym used to refer to the majorly indebted countries in Europe- Portugal, Italy, Greece, Spain (The acronym is sometimes seen as derogatory). The other countries will no doubt be seeking debt forgiveness if debt forgiveness is granted to Greece.
The question now is; should Greece’s creditors including the Eurogroup finance ministers and the European Central Bank grant some form of debt cancellation/ forgiveness? It is interesting that both the International Monetary Fund and the USA think Greece should be given some form of debt relief.
The case for Greek debt relief/forgiveness:
• Risk of financial crisis spilling over to the rest of Europe if Greece defaults
• Keep Greece in EU (political consideration) and blunt Russia’s influence in Europe
• Assist Greeks (EU has a moral obligation to do such)
• In 1953 Greece was one of the countries to forgive debts owed by Germany
The case against Greek debt relief/forgiveness:
The case for rejection can be simplified into: if Greece’s debt is cancelled then that sets a precedent for debt cancellation in other European countries. The IMF doesn’t have the money to accommodate debt forgiveness in a meaningful manner on this scale.
• Italy’s national debt is 2.69 trillion Euros (2.98 trillion USD)
• Spain’s national debt is 1.05 trillion Euros (1.16 trillion USD)
• Greece’s national debt is 342 billion Euros (380 billion USD)
• Portugal’s national debt is 276 billion Euros (307 billion USD)
Compare the size of the IMF’s piggy bank (668 billion USD) to the needs of the PIGS: Portugal, Italy, Greece and Spain detailed above. The European Central Bank isn’t going to print money to write off debt of the PIGs and the Eurozone governments aren’t going to forgive the debts of the PIGS grouping as their electorates wouldn’t allow it.
The current Greek situation is:
Greece has defaulted on an IMF repayment
Greek government debt repayment ($2.21 billion USD) due by July 10th
Greece has an upcoming repayment to Japan ($89.6 million USD) due by July 14th
Greece has another payment to the European Central Bank (ECB) ($3.87 billion USD) due by July 20th
A single nation like Greece is much more important in a currency union than it would have ever been on its own. Consider Argentina an economy (two times larger than Greece defaulting and not having nearly the same impact/ consideration as tiny Greece). This should perhaps be a selfish incentive for Caribbean nations to become part of a currency union bigger than themselves.
Fortunately, the Caribbean’s debts are miniscule by comparison and our claim to debt relief is historically grounded (beyond immediate economic missteps).
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